State readies cap and trade auction, businesses sue

3:15 PM, Nov 13, 2012   |    comments
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The long implementation of California's landmark climate change law appears poised to make history, even as the state's biggest consortium of corporations asks the courts to intervene.

Regulators are prepared to launch the first auction of pollution credits on Wednesday, the key part of a 'cap and trade' strategy to help reduce -- as mandated in law -- California's greenhouse gases by 2020.

That auction will involve the allocation and purchase of 'allowances' for companies to exceed their capped pollution limits -- thus attempting to use market forces... cold hard cash... as a way to either comply with the law, or funnel new cash into state climate change strategies.

It's that last part, though, that's now landed in court.  On Tuesday afternoon, the California Chamber of Commerce filed a lawsuit that claims the revenue generating portion of the plan exceeds state law.

Business groups have long argued that the auction, and the resulting cash from ever more scarce pollution credits, will harm the state's economy.  Their lawsuit filed in Sacramento Superior Court alleges that process is not allowed under AB 32, the climate change law signed by then Gov. Arnold Schwarzenegger in 2006.

But the lawsuit won't apparently stop Wednesday's auction from taking place -- an auction that state officials say will be in a private, undisclosed location... where companies will be able to claim and trade credits using a secure online system.

"This is historic," says Dave Clegern of the state Air Resources Board.  "It's kind of the last piece of a multi-program effort to control greenhosue gas emissions in California."

The initial auction isn't expected to generate any real cash, but rather set a market rate -- value -- for the pollution credits.  The vast majority of initial credits are being given to businesses for free. But the auction will go beyond just these early credits, marking those for future years as a "vintage" that will be cashed in once it's... well... ripened.

The cap on those emissions, first focused on the industrial sector, will be lowered each year by 2 to 3 percent.  State officials say that will allow companies time to either become more efficient in their operations -- thus, fewer greenhouse gas emissions -- or slowly impose the additional costs to keep doing business in the same manner.

Even so, the market-based auction system is being counted on for only a portion -- about 18 percent -- of the greenhouse gas reductions mandated under the 2006 law.  That means a lot of heavy lifting in other places to meet the mandate.

The creation of the cap and trade system has left some prominent businesses -- with many of them in the manufacturing sector -- arguing that the process will be unfeasible at best, an economic drag at worst.  There have also been questions about the gamble being taken for a state like California to essentially go it alone on an issue that affects the entire nation, let alone the world.


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